Standby Letters Of Credit: Issuer’s Right Of Reimbursement And Wrongful Honor

LexisNexis (October 25, 2019, 12:30 PM EDT) -- Once the issuer has honored a draft drawn under a standby letter of credit, it has a statutory right of reimbursement from the applicant. UCC 5-108(i). This poses a credit risk for the issuer. Since the statutory reimbursement claim is unsecured, the issuer is unlikely to collect much on its claim if the applicant files bankruptcy. If a commercial letter is involved, this risk is reduced because the issuer can hold the bill of lading until the applicant either pays or arranges for credit....